The term Related Party is often used in the company while any sought of disclosures are required to be made by the Company.As the company grows, there are many new investors participating in it. Thus it becomes necessary to ensure utmost transparency by companies. Lets get started with some basic concepts in related party transaction under SEBI.
As per SEBI (LODR) Regulation, Relative with reference to any person, means any one who is related to another, if—
A Related Party Transaction means when there is business transaction between entities or persons that has some prior connection with reporting entity.
As per SEBI (LODR) Regulation, 2015 a related party transaction means-
“Transfer of resources, services or obligations between listed company and a related party regardless of the facts that a price is charged and a ‘transaction’ with a related party shall include single transaction or multiple transaction.
The Approval procedure mainly consists of four types-
All Related Party Transaction mandatorily require approval of Audit Committee irrespective of the fact whether transaction entered by the company is in Ordinary course of business or on Arm length basis.
| Sr no | Nature of Particulars | Unlisted Companies as per Companies Act, 2013 | Listed Companies as per SEBI (LODR) Regulation |
| 1 | Approval of Audit Committee required for transactions | 1. Approval of Audit committee is must for all related party transaction.
2. Transactions not referred in sec 188 and where audit committee does not approve the transaction, it shall make a recommendation to the board.
3. If any transaction amount exceeds Rs 1 Cr is entered by the Directors or Officers of the Company without obtaining approval of Audit Committee then not ratified by Audit Committee within 3 months from the date of transaction then it shall be void |
Approval of Audit Committee is mandatory for all types of related party transaction. |
| 2 | Omnibus Approval | 1. Figure out repetitive transactions with related Parties.
2. Justify need for omnibus approval
3. Set the criteria for Omnibus approval and intimate the
Board of directors of the Company
4. Omnibus approval shall be valid only for 1 year. After expiry of a year, fresh approval needs to be accorded.
5. Omnibus approval cannot be made for transactions of selling or disposing of the undertaking of the company. |
1. Figure out repetitive transactions with related Parties
2. Justify need for omnibus approval
3. SEBI (LODR) does not mention any criteria hence criteria in Rule 6A shall be used for Omnibus Approval
4. Omnibus approval shall be valid only for 1 year. After expiry of a year, fresh approval needs to be accorded.
5. Omnibus approval cannot be made for transactions of selling or disposing of the undertaking of the company. |
| Sr no | Unlisted Companies as per Companies Act, 2013 | Listed Companies as per SEBI (LODR) Regulation |
| 1 | Approval of Board of Directors shall be obtained in ordinary course but shareholders approval by way of special resolutions needs to be passed if the threshold limit of transaction per the rule 15 of the Companies (Meeting of Board and its Powers) Rules, 2014 is triggered. | Approval of Members or shareholders needs to be obtained in case of threshold limit is triggered for any transaction at any given point |
| 2 | Details of Specified Transaction should be enclosed with the explanatory statement as attached with the Notice of meeting | Details of Specified Transaction should be enclosed with the explanatory statement as attached with the Notice of meeting |
| 3 | A shareholder if a related party to the transaction shall not be allowed to vote | A shareholder or member if a related party to the transaction shall not be allowed to vote |
| 4 | Approval of members shall not be applicable in following cases-
– transactions entered into between two government companies and
– transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval. |
Approval of members shall not be applicable in following cases-
– transactions entered into between two government companies; and
– transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval. |
If there is any change or modification in any transaction or contract or arrangement with related party then prior approval from original authority is must to obtain
While approval of change, following aspects shall be considered –
